The former Thales program manager joins host Phil Tarrant for this episode of the Defence Connect Podcast to explain why a love of innovation spurred him to leave the defence industry and co-found Maestrano – a cloud integration platform featuring applications that support the running of startups and SMEs.
Tune in as the duo go in depth on innovation in defence – from why there’s not enough room for creation, to the slow-moving and restrictive defence cycle, to how the government can fuel more innovation within the industry – and why they believe that without it, the Australian Defence Force could be left behind.
Enjoy the podcast,
The Defence Connect team.
Listen to previous episodes of the Defence Connect podcast:
Episode 77: PODCAST: Driving Australia’s defence industry at home and abroad, The Hon Christopher Pyne MP, Minister for Defence Industry
Episode 76: PODCAST: Fixing veteran unemployment, Tom Moore, WithYouWithMe, co-founder and CEO
Episode 75: PODCAST: More than just a builder of tanks and trucks, Gary Stewart, managing director, Rheinmetall Defence
Episode 74: PODCAST: Building a sovereign space capability – Rod Drury, managing director Australia and New Zealand, Lockheed Martin Space
Episode 73: PODCAST: Building long-term capability for defence and industry through LAND 400, Brian Gathright, vice president of business development, BAE Systems Australia
Episode 72: PODCAST: Shaping the conversation in defence industry, Kate Louis, head of defence and industry policy, Australian Industry Group
Episode 71: PODCAST: Technology transfer in naval shipbuilding, Sean Costello, director, Fincantieri Australia
Episode 70: PODCAST: Taking the reins of a defence prime, Gabby Costigan, BAE Systems Australia, CEO
Episode 69: PODCAST: A smooth transition to defence industry – Colin Thorne, partner, engineering and asset management, KPMG
Episode 68: PODCAST: Leading from the front in defence industry, Warren King, chairman, Navantia Australia
Phil Tarrant: G’day, it's Phil Tarrant here. I'm the host of the Defence Connect Podcast. Thanks for joining us today. We’re getting a bit techy. I've got my hoody on. I'm looking very startup. We're gonna delve into the world of tech startup. It's not really tech startup anymore. This business I've asked to come to the studio today is beyond the tech startup phase, and to quote our guest, Stephane Ibos, "We're not at the risk of living or dying now as a startup. We’re actually into a good production phase, but were still a growing business." Stephane is from a company called – I'm gonna try and pronounce it properly – Maestrano?
Stephane Ibos: Correct.
Phil Tarrant: Did I get that right?
Stephane Ibos: Good job.
Phil Tarrant: And Stephane's got an interesting story so I'm gonna try and extract that out of him today and it's gonna be a bit of a different podcast from what we normally would do, and that is chatting about heavy defence industries. I'm gonna sort of flip it on its head today and ... Stephane has come from defence and taken a lot of learnings working across defence programmes and products to expand his mindset and thinking and I think find a problem that needed solving and now he's delivering a lot of value to SMEs not only in Australia but globally as well. Stephane thanks for joining us.
Stephane Ibos: Thank you Phil. Thanks for having me.
Phil Tarrant: As you can detect, Stephane has an accent, which is obviously from France, and he was formerly with Thales – so that's your defence experience here in Australia, but can you tell us little bit about how you ended up in defence and how you ended up at Thales?
Stephane Ibos: Sure. I needed an internship at the end of my studies in France, and I wanted to do it abroad, and that internship position came out from Thales in Australia, and I thought, if I have to go abroad, let's make it as far as possible from France, I guess. So Australia fit the bill and I started at Thales for six months. I enjoyed it very much. I enjoyed working in the defence environment, to be truthful, and at the end Thales offered me a visa and a permanent position so what was six months at first in Australia has turned out to be ten years so far.
Phil Tarrant: Ten years with Thales?
Stephane Ibos: Ten years in Australia. Six years with Thales.
Phil Tarrant: Ten years in Australia. What did you study in France?
Stephane Ibos: I've got a Masters in Telecommunication Engineering. That's my main. I also did a similar course in Business Management, so I got a bit of the two hats there, and previous to that I did three Bachelors in Chemistry, Math and Physics. I just could never choose.
Phil Tarrant: Okay. Wow. So you got a pretty good academic background to-
Stephane Ibos: Yeah, which unfortunately is not helping much in my line of duty, but yeah.
Phil Tarrant: So what was it originally attracted you to the defence space, to apply your academic learnings in a business context.
Stephane Ibos: I didn't really get an appetite for defence. It just happened that the topic of the internship looks really cool. It was about radio telecommunication systems between frigates, and again it was in Australia. I actually got to love defence as I went by and what I particularly loved was the fact that whatever you do in defence as a supplier has a direct impact on people's lives on the field, and later on at Thales I worked on the Bushmaster programme a lot, on the support side of things and definitely it was very apparent that whatever we do had an immediate impact in operations.
Phil Tarrant: I think everyone's quite conscious about the success of the Bushmaster as a vehicle for protecting soldiers and saving lives. It's had a pretty good track record.
Stephane Ibos: It's unique in the world. I was really proud to work on that programme and would do all the urgent operational requirements for the US trained troops in Afghanistan especially, at the time, and that was just a beautiful journey.
Phil Tarrant: Yeah, and son of Bushmaster, Hawkei, should live up to a very similar pedigree, I understand.
Stephane Ibos: I got the pleasure to work on the Hawkei programme, when it came to electronics integration, so very much involved. I was leading the Land 75 project, on Thales' side, so very much involved in Hawkei and electronics development. And I can tell you that I've got no vested interest in Thales anymore but I can tell you that the Hawkei is of all aspect a fantastic product. It's really great.
Phil Tarrant: So you've gone from a career in defence, within a defence prime, working on major projects, and projects which have a long incubation period, but ... You know, the Bushmaster will be in service now for a long time, moving forward.
Stephane Ibos: Correct.
Phil Tarrant: So how've you gone from doing that and taking the plunge into the safety of salaried employment into setting up your own company? Can you tell me that story?
Stephane Ibos: Sure. The one thing I loved with defence was the depth of projects that you are involved with. The downside was probably as you mentioned the cycles of the project. When you start something really significant you are looking at ten years plus from the initial idea to its inception, so that was always ...I didn't know it yet at the time, but I'm an entrepreneur at heart, so I guess that was a bit of a frustration for me, and then more so we discovered I was heading a business unique in Thales that was in charge of integrations of systems, disparate electronic systems, and I realised that we could apply that in the civilian world, in the sense where we worked at Thales with lots of small and medium business as part of the small business industry involvement programmes, and I realised with Ano that these SMEs didn't have any tools to run their business – not by lack of offering because on what's called the cloud online you can find many systems to run your business but because it's all very siloed. So small and medium business people are by definition time poor, and the value proposition consist in telling them, "You're time poor, and instead of using the one spreadsheet, were gonna give you five or six systems, but you're gonna need to key in your data five or six times. It's obviously something that didn't appeal to the market. When you look at the SME market, it's a huge market and very difficult to penetrate. And we thought, "OK, we've got somehow the knowledge of integration." We see a gap in that huge market that requires integration so we thought why not giving it a chance and trying.
Phil Tarrant: Talk me through the day that you tended your resignation and gave up probably a nice salary and into the world where – you know ... Living on baked beans and two minute noodles.
Stephane Ibos: Yeah that was pretty much that. I remember having called my parents in the evening of having tendered my resignation and informing them that I had left my cushy job to go on doing my own startup and that was probably the biggest blank I've had on the phone, ever. 'Cause I was comparatively young to hold the positions I had at Thales, so it was, for parents, a sort of tracked path, but it was all very gracious at Thales. I guess they probably knew I was always a bit of the odd one, trying to push always innovation and always trying to push the boundaries, so I don't think it came as a surprise that I wanted to venture in the startup world. They've been really great. My boss was the vice president for our division. They have been very supportive actually. One beautiful thing was the farewells I had with my clients, so the governments, that was rely good times so yeah it was a transition.
Phil Tarrant: What do you think it is? Because it’s not unique to Australia, that fact that defence industry is a great generator of tomorrow's innovators and entrepreneurs outside of defence. On the defence connect podcast, we often talk about bringing talent form outside the defence industry to apply that within the defence industry; academic researchers and innovators and they can apply that within the defence space, and that's happening a lot more now and obviously the government’s trying to champion that. But the other way where defence breeds innovators external to defence ... Israel for example. It's a huge driver of innovation outside of the defence industry into more commercial environments. What is it, do you think, that creates innovators out of defence that can go out and do what you're doing right now?
Stephane Ibos: It's a set of good news and bad news. The good news is that if you look at most industry players in defence they are obviously lots of R&D programmes, so all the people motivated by innovation can find plenty to do within that scope. The bad news is, from my experience – and I've worked on probably 20 projects from the government and a good 10's internal – the problem is, between the time an industry player will do something as part of their R&D efforts and the time it becomes actually meaningful, meaning deployed or actually delivered to the client, the sales cycle is so long and the decision making process for the government is so long, that it becomes a bit underwhelming, because what you're working on today will be probably, if you're lucky enough, on the field in 10 years, that is if it's part of the DCP or the strategy of the government or whatnot. The problem is, when you release it in 10 years' time, it's already obsolete. So there is that frustration that ... I think the defence cycle is way too slow, and to be honest, I think both the industry and the government should look at themselves a little bit. Israel is a great example. Israeli companies prototype really rapidly, really fast. The government takes the prototypes and immediately conducts some sort of field trials or something to immediately fast-track innovation in the actual programmes. I think looking at other governments, be it the Australian, or the French one, or whatnot, it takes such a long time to get there, and there is that notion of being risk adverse, and the problem is because the government is so risk adverse in engaging the funds, in funding of fielding that innovation, then as an immediate repercussion the industry becomes very risk adverse as well. And typically the defence industry at large doesn't consider innovation as an investment; they consider it as a cost, and all that matters to them is to limit the cost, when I've been always pleading for the industry to act as venture capitalist internally, and say okay, out of 10 R&D projects, nine will fail, but one will succeed, and they should manage the bank of innovation like VCs manage a portfolio of startup, and that would probably fuel more innovation.
Phil Tarrant: Let's take this Israeli example. Do you think that because of the geopolitical situation in the Middle East that there is a lot more pressure to drive innovation within Israel, because of where it sits within the world and its neighbours, that they know that if they move quickly they get advantages, and therefore that has changed the culture of innovation, but we don't have that pressure here in Australia?
Stephane Ibos: Most likely. I mean, definitely. That's for sure. The only thing I would challenge with what I've seen of Israeli defence industry is that they at times have little regard for the actual soldiers, so they would put innovation in place, but if it's not able to withstand the blast, or if it means that in case of an attack the soldiers will lose their legs because they're being crushed, you hear stuff like, "Well, they're soldiers so it's their job." From that point of view, I've never bought into that, and I think Australia is right in saying, "No, it's a soldier – it's a father, it's a son, it's a brother, so no, we want the guy to potentially come back home alive and if possible well.” So it's not all rosy, the way Israel manage that fast prototyping, but by the same token I think we need to be aware of the emerging threats. If you look at ISIS, for instance, these guys go on the field with plastic bottles filled with TNT, and throw that and make maximum damage. And in front of that, we as the occidental countries take a long time to ensure that we've got all the compliance with all the standards, and the fire thing and the fire that, which again is good in a way, but unfortunately may mean we are behind the red forces that don't have the same regard. I don't have a solution for that. I think it's a horrific equation, but it's certainly something we need to find a solution-
Phil Tarrant: It's a much bigger issue. It's probably beyond my pay grade to talk about it. It's complicated – the drivers of innovation and what necessitates innovation – and obviously there's a lot of different factors and forces influencing it.
Stephane Ibos: The thing with innovation is that by nature it's bound to fail. When we started Maestrano, we had no idea whether the company would live to see another day. Unfortunately, you cannot know until your product is out there, regardless of the industry, and being used and being tested. So it's all very nice and good when you're talking about non-life critical systems, like we are at Maestrano. It becomes a lot harder when you talk about aviation, defence, medical industry. What I think the industry needs to do is to try to shorten as much as possible the R&D cycles, get that into simulation and trials, outside from the operations, the theatre of operations, and test the innovation, because otherwise when our troops get on the battlefield, they're 10 years behind other troops, other forces, other enemy lines.
Phil Tarrant: Having your experience that you had in defence and now external to defence in a startup environment – a startup environment is very rapid, very open, very transparent, very honest – if you could go back into defence, learning what you've learned external to defence, what would be the one thing you would try and encourage within defence industry, and something you would impart to every defence business, to think like a tech startup but within the application of a defence environment, which we've said is a tough one…?
Stephane Ibos: For me, the beginning of innovation is funding. You don't innovate without funding. There is a reason why the venture capitalist industry is blossoming at the moment, is because they've got lots of money that they reinject, and again they look at a portfolio of hundred startups. They know perfectly that 90 will fail, and that they will make their money back on the top two or three that they invested in. If I was to go back in the defence industry, if it was in one given company, I would certainly push to establish a sort of internal VC fund that would not manage R&D as a given, which is, "Okay, we've got to spend that money, or we've got to cut back on R&D," but that would be a pool of investment that we would justify as per business cases, and manage a portfolio of innovation as such, and then I would strongly encourage the government to do a similar thing industry-wide. So they'd say, "Okay, we're the government. We are paying innovation," because they've got the topics and they got this and they got that. They should form a sort of venture capital and say, "Out of everything we're gonna invest in, some of this innovation will have a 10 year cycle, some of them will have a one year cycle. These are the risks of failing," and really manage that the way the VC industry manage innovation. From there obviously it will attract talent, because to the risk of sounding a bit childish, but working in the defence industry when you're young, professionality is super exciting. It's really meaningful. I think we could attract great talent in that industry, should we give them the opportunity to express their potential and their innovation.
Phil Tarrant: When you look at the Fintech sector now – the banks are right behind it, so the banks are always looking for the next group of people who's going to disrupt them and there's a really good Fintech movement within Australia where you have industry and startups joining forces together, and essentially it's giving the banks in particular a vehicle to identify the people who will disrupt them and then acquire them, and that's encouraging quite a bit of innovation.
Stephane Ibos: Yeah. We at Maestrano work with about 10 banks globally, and we're talking the top banks, so definitely we know about that, but it's really smart, because it's a story of an industry that has realise that with or without them, innovation would carry forward, so instead of just being very reactive against it, they've chosen to lead the charge, and you need to fuel the innovation, and to pick and choose what they want and inject it in what they do. I think defence should learn a lot from that because one of the issues defence has is there are very few startups working around the defence environment, and the reason is fairly simple: when you are a startup you've got shareholders, who injected money; shareholders want a return on their investment – somewhere between three to six years after having brought the money in. So which investor would go and give a million dollar to a startup, for something that is great, but they know that the potential return on investment would take 10 years, and that's not even sure because that's dependent on the threats evolving, on the government changing and everything? So the problem is, private innovation, startup-wise, is not as rich as it is in other industries.
Phil Tarrant: It's a real conundrum for the defence industry, isn't it?
Stephane Ibos: Yes and no, because I really think that, at times ... Again, I've been involved in projects and ten dozen RFPs, and to be honest I think the government is red-taping a lot more than would be required. There are times when, you know ... You look at the time we had the DCP, the intentions were clear, between the announcement of a project or programme to come and the actual result of the programme, the scope had changed about a gazillion times. The government seems to be very volatile when it comes to lobbying. They will listen a lot to the last one that spoke in their ear, and I think that's hurting the industry. I really think that instead of issuing these massive, $100,000,000 programme, they should go for programmes that are 10 to 20, $50,000,000 and have much shorter cycle, and each time poke the industry to try and get the best out of it.
Phil Tarrant: It sounds to me that you're probably one of the biggest defence advocates I've ever met, but you're also very frustrated with the defence industry and ... My point would be that someone like yourself who leaves defence industry to pursue being a business owner in a completely different environment is a loss for defence, and how do we stop this leakage of talented people in defence industry leaving to pursue other areas which provide an environment for them to excel in a startup phase, within Fintech space?
Stephane Ibos: Well, I really think sadly enough it comes from the top. I remember on each programme that I was managing for defence, we have the infamous score card, and god forbid you got anything else but the purple star on that score card, and then if you go down into the green or the yellow, your life is over, pretty much, because than your vice president will get all frustrated that you don't have a good rating. So, basically the government doesn't allow any room for mistake or error or trial, and that has a direct impact on the industry because there are liquidated damages and heavy consequences for the industry, so then the industry doesn't allow any margin for error. So you put that all the way back down to the engineers or the people thinking in the lab, and you've got a full chain that doesn't allow any room for error or trial, and again, as much as I understand there is no room for error because we're talking about soldiers fighting, so we need to protect them, so having a system that's faulty is just not acceptable. By the same token, if you don't allow people to try and fail, then you never really know it. I think it's sad that whole chain, that someone should look at it and say, "Okay, how do we ensure that we get a system at the end that is absolutely reliable, whilst ensuring that along the way we benefited for all the little mistakes and learnings that actually fuel innovation?" Knowing as well that the risk zero doesn't exist, so it's an illusion to think that after all these testing trials and everything you're gonna put a system out there that is not faultable is a total illusion. So I think it comes from the top. I think we need to let people room to innovate, and again that would bring people back in defence. I mean, I very much reluctantly left defence. I really enjoyed what I was doing.
Phil Tarrant: Will you head back, do you think?
Stephane Ibos: I would. I mean, that's a how-long-is-a-piece-of-string question, but I certainly always had an appetite for defence. I certainly now, with a bit more background and experience see what industry players could do to move forward in a much faster in a much more clever way. Is it an industry that is ready to be disrupted, or ready to think a bit differently? That's another question.
Phil Tarrant: It is. So your business now ... Tell me a little bit about exactly ... I understand it's really the integration of disparate – quite similar to a combat systems, I guess – apps and platforms to provide a single solution for users. Pretty much what it is, right?
Stephane Ibos: Correct.
Phil Tarrant: So can you explain that a little bit more?
Stephane Ibos: It's a story of integration. All the big companies, in the Forbes Top 200 companies, historically always spend millions of dollars with the Oracles and IBMs and Accentures of this world, because they purchase an ERP and they purchase a CRM and they purchase an accounting platform and whatnot, and they would pay these guys to integrate them together, so that they had an end-to-end meaningful system. We pretty much endeavour to bring that out of the box to the small and medium business market, that obviously then benefit from that. So Maestrano is an integration platform on which we plug cloud applications like Zero, like QuickBooks, like Microsoft, and automatically these applications talk together, so exchange data. And then on the back of that would be the data engine, so we show some automated analytics, and again the entire value prop is that SMEs don't have to do any sort of technical work or contribution or anything – they get to use disparate systems that actually work together. Typically, to some degree, I would think that we've solved that integration issue for the SME market. I would think that integration is one of the biggest pain points any industry considered, and very immodestly I would consider that we could have a solution that could help in any other industry.
Phil Tarrant: So how long has the business been in play now?
Stephane Ibos: Three years and a half. We launched in January 2014.
Phil Tarrant: And how have you funded the development and growth?
Stephane Ibos: We spent nine months before the actual launch looking for people that were risk takers enough to invest in us, so we raised a million dollars in December '13. Then six months after launch, so in June 2014, we already had traction in the US, so we raised a further $2.4 million dollars to launch our overseas expansion. Then we went on quite rapid growth actually, where we established two offices in the US, one in London, one in Dubai, one in Singapore, and last year we raised a further $4 million dollars to just fuel that growth.
Phil Tarrant: Okay.
Stephane Ibos: That's an interesting mechanism that I don't think happens in defence. It's always the mechanism of we commit to do something, we measure the results and I got a very clear set of KPIs, and if we achieved it, there is no miracle: we're on track; and then it attracts further funding, because it's worth keeping on investing in what we're doing, right? And that mechanism of short term commitment, measuring, achieving, injecting more money in, and you do it again...
Phil Tarrant: It's a story isn't it? Speaking to a lot of people within the Fintech startup space ... You don't have to answer this question, but how much have you had to give away of the business in order to secure that funding. Is that something…?
Stephane Ibos: Yeah, so, we don't disclose that, because we're still a private company, and it may be that in a certain future we list the company on the public market, so we're very guarded about that information.
Phil Tarrant: Fair enough.
Stephane Ibos: But it's fair to say that at this stage, Arnaud and I-
Phil Tarrant: That's your business partner.
Stephane Ibos: That's my business partner. We still largely ... We own still, quite comfortably the majority of the business.
Phil Tarrant: Okay.
Stephane Ibos: We've been very fortunate in that, in the sense where it's always difficult exercise for startup to ascertain how much you wanna give away versus the funding you need, and at what stage you do it.
Phil Tarrant: There's no real answer for us, but a potential problem for all startups.
Stephane Ibos: It's all dependent on the industry, on the velocity at which you grow, on what you think you will achieve. Obviously, if you don't achieve what you said, it's a really painful situation. If there are any people that want to create a startup, or that have a startup that are listening, I think it's all a function of what you think you can achieve, looking at the comparables in the market, and benchmark yourself against these comparables and say, "Right, we believe we got that potential, and that's where we are, so as a result we're willing to give away that much of the business.
Phil Tarrant: That's good. Stephane, I've really enjoyed the conversation. I didn't expect it to go the way it did. It's good, but ... I like stories. I like storytelling and I think you've got a great story, in terms of a career built within defence industry, on the back of some solid academic credentials, but realising where the true value for you was moving forward, realising what excites you, and hats off to you going out there and doing something yourself. I know how hard it is, so I wish you all the best in the future.
Stephane Ibos: Thank you very much.
Phil Tarrant: If you've got any questions for Stephane or for me, contact us and I'll pass you on to Stephane – editor at defenceconnect.com.au. Tim'll grab that and correspond with you, and I'd like to keep connected and hear this story as it grows. It's good, and I think you have some very fair observations about defence, and I think anyone who's listening to this, whether it's in government or the primes or other associated areas ... The point you made around what were some of the parallels we drew with the Fintech space and how that's championing innovation and not putting too many barriers and restrictions in place, to allow people to fail and fail fast, but through failure you identify some very good things as well, so I think that's a mindset that defence can really look to embrace. That's a key message for me. Remember to check out defenceconnect.com.au. We're on all the social stuff as well, if you like to get your information that way. We'll be back again next week. Until then, I'll see you then. Bye bye.