stargate project case note -jess

Stargate International & Matt Bowden: case study theoretical note

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INTBUS705 : JESS MAHER (NOV 2010 )

THEORETICAL STUDY CASE NOTE DEVELOPED BY JESS MAHER

Entrepreneurship Case Study Note;

Stargate International & Matt Bowden

CONTEXTUAL RELEVANCE

When considering the case study of Stargate International and the entrepreneur behind the

brand, Matt Bowden, the evidence of entrepreneurial behaviour and process can actually be found

much greater than one might initially assume. By traditional, capitalist constructs of wealth and

value creation, the success of Matt Bowden with his enterprise Stargate International, may be

perceived to have been a short lived one. But to suggest so would not only be narrow minded but

also an insult to the truly innovative and entrepreneurial nature of more than just Matt Bowden.

When asked about the ongoing success of his entrepreneurial efforts, Matt colloquially replies

with a slight chuckle, "well, I haven't had to 'go to work' in over ten years". Schumpeter's theory of

"bounded rationality" emphasizes the need to consider markets and their processes within the

context or bounds of which they are accruing. This highlights the reality that this market operates

within the context of both the location and regulation it is governed by. Matt's context and "story",

truly captures the essence of social entrepreneurship to some extent. The obvious "social

entrepreneurship" classification of drivers and measures of success are limited in the traditional

capitalist model of the economy. Matt's drivers were largely "social change" from the outset.

THE LAW OF ECONOMICS: MODELLING THE RECREATIONAL DRUG MARKET

The model of economics which models and dictates our capitalist free markets is one that has

been long standing and broadly applicable to many areas of contemporary markets. Based on the

process of balancing of demand and supply, the concept is as such that is will balance itself to a

point of market equilibrium. Yet we commonly seem to overlook what Schumpeter (1911) tried to

explain that the is a static two dimensional model which we have created. The market processes are

in reality much more complicated and ongoing and in fact occur within a certain context or

conditions. The recreational drug market is the same, occurring in the market place where by these

factors continue to balance themselves out.

This market provides a clear and uniquely obvious insight into the contexts and variance of

conditions which occur and are influenced during this balancing process. Displayed in Figure 1.0, the

market for ”recreational drugs” (which can include a wide variety of products in a large variety of

forms) which have over time become restricted or limited due to the norms and laws of our world.

Given the western societies overwhelming rule of the capital markets we have created, these

competitors to Stargate International’s market place includes a large number of legal alternatives


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(such as coffee, alcohol and tobacco) but also an even larger number of illegal illicit drugs (the one

which Matt was trying to overcome the harms of particularly was methamphetamine). Considering

the market dynamics of the recreational drug market, using the market equilibrium model featuring

supply and demand was how Matt Bowden had unintentionally come to understand the kind of

economics of prohibition and the “war on drugs”.

The principles of market economics, including elements such as demand & supply are

increasingly recognized to not be the only relevant factors on the progression of a market or

industry. The significance of additional factors to simply the price of a good being only one factor for

assessing demand is demonstrated in the significance of “brand value” in contemporary markets and

organizations. As Schumpeter had discovered, the Economic model of "market equilibrium" created

a narrow and static interpretation of the processes on display. There is more to the process of

reaching market equilibrium that just the capital losses or gains considered by the entrepreneur or

market.

In this context, there is clear and obvious relevance that despite the economic model or

market equilibrium which achieves balanced in any market, it is also clearly regulated and affected

by many conditions of its given contexts. The recreational drug industry as a market unto itself is

also faced with the same opposing pressure of demand and supply, which is identified explicitly in

government policies. Considering the National Drug Policy in New Zealand markets, this recognition

of the market forces of the illicit drug market have also been appreciated.

Supply Reduction

In this case, supply reduction is focused on removing the providers of this good, yet

without changing the demand, new providers spring up in their place. The act of making this

an illegal activity, removes the pressures of market from the normal governing context in

which they would otherwise operate. As the current generation of skilled providers of these

goods being removed from the market causes the price to increase, this motivates the rapid

introduction of new providers to replace them who have less training and experience. In

effect, creating a separate context of enterprises in which differentiated pressures occur

without any regulation and quickly result in unsafe practices.

Demand Reduction

While the government offers the solution of drug education to reduce the demand for

illicit drugs in the community, Matt poses the idea that in fact such education for many

people, particularly in his situation, in reality this process sparks curiosity in this underworld.

While the BZP products being produced by Stargate offered an alternative to more effectively

reduce this demand for illicit drugs. The NZ government had the insight to understand and

appreciate Matt's argument and in 2005, added another schedule to the policy governing

these activities, Schedule 4 (Class D), which contains R18 legal recreational drugs or as Matt

calls them, “social tonics”.


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"WHEN YOU PUT PRESSURE ON SUPPLY WITHOUT REDUCING DEMAND, YOU REDUCE THE QUALITY

OF THE DRUGS OUT THERE, MORE PEOPLE GET SICK, MORE PEOPLE DIE AND THE VALUE GETS

ARTIFICIALLY INFLATED TO THE POINT THAT MORE PEOPLE TAKE THE RISK OF PRODUCING, SO NO

MATTER HOW MANY METHAMPHETAMINE COOKS THEY PUT IN JAIL ALL THAT HAPPENS IS YOU GET

THE SKILLED GUYS AND REMOVE THEM SO MORE UNSKILLED PEOPLE START COOKING

METHAMPHETAMINE OF POORER QUALITY" (MATT BOWDEN, IN INTERVIEW-SEPTEMBER 2010)

FIGURE 1.0 | LAW OF ECONOMICS WITHIN THE RECREATIONAL DRUG MARKET


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LEVELS OF ENTREPRENEURSHIP

Despite the unique nature and context of this given industry, the potential to uncover insights

more broadly in the NZ economy is overwhelming. And one would be correct in the assumption that

now-a-days, Matt's priorities largely remain firmly focused on his family. In fact, Matt created not

only a very innovative and entrepreneurial enterprise in Stargate International, but also catalysed a

global industry which to this day, largely remains to be lead and directed by Kiwi Entrepreneurs,

many of whom are still based in New Zealand. Matt also unwittingly identified the huge potential of

New Zealand in its position of a test market and representative sample of Western economies.

When considering the different levels of society, as outlined by (New Zealand Trade & Enterprise,

2009), there are three levels at which entrepreneurial contexts can be found in this particular case.

All three of these levels are found overlapping in innovations and in their conjunction created a very

unique and special market, industry and enterprise.

FIGURE 2.0 | THREE LEVELS OF SOCIETY AND ENTREPRENEURIAL BEHAVIOUR


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The Individual Entrepreneur level | Matt Bowden

Matt Bowden is a very charismatic and unique character, and despite his somewhat

controversial line of work, there is no doubt that he possesses a certain level of charm or at the very

least, persuasiveness. He is both incredibly personable and ultimately relatable, and unwittingly

appears to create an air of compassion and understanding of both his organisation and cause.

Given the passion and drive of Matt Bowden, there is no doubt he was bound to have an

influence in some way or another. There are many aspects of Matt Bowden's 'story' which are

aligned with a number of varying models and elements of international business studies within

entrepreneurship, including, Indigenous, Government & Social Entrepreneurship and Family

Business. Furthermore, Matt Bowden’s passion and drive is infectious, and his success as “the

person who innovates, who makes new combinations” is undeniable (Herbert & Link, 1989).

Prosecution, legal action, threats to personal safety and even risk of death were all very real risks

taken on by Matt Bowden in his entrepreneurial process. It is almost made impossible as such to not

be able to relate to his cause and every person, even the sceptics or judgemental audience cannot

argue that he has logic to his approach.

OPPORTUNITY RECOGNITION & “BOUNDED RATIONALITY”

When considering the beginnings of Matt's story, in terms of "opportunity point recognition",

Matt paints a rather tumultuous picture of this time of his life. With various tales of drug abuse,

violence, prostitution, crime and even death, Matt found himself reaching some alternative

understandings and perspectives on the matter of drug law reform. Matt's drivers largely revolved

around "social change" from the outset. Capturing the essence of social entrepreneurship to some

extent, Matt felt the obvious drivers and measures of success were limited. Commonly found in the

field of "social entrepreneurship", Matt struggled in measuring success factors when they remain

limited and overlooked by many in the traditional capitalist model of the economy.

Schumpeter coined the phrase, "bounded rationality". Unlike his other academic counterparts

at the time, Schumpeter saw the entrepreneur, not as irrational, but in fact with their rationale

bounded to the specific context or setting in which they could be found. This is particularly relevant

to many aspects and elements of academic research broadly, but particularly within the field of

entrepreneurship and indeed this particular case (Schumpeter, 1911). The relevance of legal policy

and regulations is obvious in this case, Matt has faced an ongoing and continuing interaction with

various Government departments and Industry bodies (one of which he himself established, STANZ)

and legal and regulatory aspects of business process in the Stargate International case can be found

entwined throughout.

In fact, this is partly due to the fact that legal reform was largely a driver of Matt's passion and

even at a fundamental level one of his original objectives. In discussing his early encounters with the

policy advisors and the bureaucracy which is intrinsic to governments, the frustration and difficulties


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associated with this process can be heard in Matt's voice. Describing the harm and violence he has

experienced as part of this "underworld", Matt really questioned the effectiveness of the current

drug policies, saying "I thought why do governments not understand that the prohibition is not

working" (Bowden, 2010).

RISK AND REWARD CONSTRUCTS

Relevance of the legal requirements and policy in this particular context is obvious as Matt

had to ensure these were adhered to. Given this, Matt’s context can be aligned with the alternative

models of social entrepreneurs, particularly in terms of the risks and rewards Matt faced. The typical

risks associated and intrinsic to the process of establishing enterprise for entrepreneurs can extend

beyond the financial indicators which contemporary models overlook. By standing up for a

community whom are by their actions classified as criminal, Matt was accepting the risk of

incarceration throughout his activism. Further illustration of the very direct relevance of such

alternative risks can be found when Matt talks about his first independent business venture, with

the Genesis pills and wealthy and eager investor in Sydney during the late nineties. Given the

investors wealth, the risk taken by Matt may not have been financial yet there were certainly

significant ones. In the investor situation particularly, which turned out to be a Criminal

Organisation, the risk Matt took on, which he was not fully aware of at the time, was that of his

personal safety and life.

This is evident in this case as at every point of the process the dynamics of the market, in this

particular case- the recreational drugs market, provided risk and rewards that extended beyond

dollars. Without realizing it, Matt Bowden had also come to this same conclusion as Schumpeter that

economic capital gain was very clearly not the only risk or reward on could consider. While Matt had

interpreted it from a legal perspective, his awareness that the structures of society were considered

external to the context of the environment, people and outcomes which they impose is much like

that of Schumpeter's.

Industry & Org Level| Stargate International & Social Tonics

If Bowden seems generous about the competition, he says he has no choice, because he

wants the industry to survive and that can only be done if they co-operate to ensure good

governance and safe practice."I don't think there was any movement within the industry to ensure

that products were becoming safer, whereas that's the gearing we're putting in at the moment"

(Little, 2005).

Schumpeterian models of economics focus on innovation as the variable which disrupts this

balance and initiates a process of change disrupting the market equilibrium, which he termed

"creative destruction" (Schumpeter, 1934). More evident in this particular context, the legal

intervention in a market such as that of the recreational drug industry, acts as a catalyst for the


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innovative process to adapt and rebalance the market from its entrepreneurs. The structures and

laws that were established at this time were based on their models & "rules" hundreds of years ago,

yet appear to remain within values and norms which drive the understanding and expectations of us

to this day.

The given nature of the Recreational Drug Industry is such that there are only a very small

number of alternatives which are still largely "socially accepted", and even smaller numbers which

are legal to any given context. The current structures and laws for this recreational drug industry

today, classify a large percent of these illegal, virtually all of the other "legal" competitors, have at

one time or another been stigmatised with this same label. With the legal limits on recreational

drugs currently confined to a very small number of products, particularly alcohol, there are also large

numbers of others than these legally acceptable recreation drugs which humans have been

historically consuming throughout time.

Further to the standard pressures of these commercial contexts, the media and largely even

policy creators are still mainly focused on representing the predominate aspects to our societies and

communities. Many of our bases of power and "standard norms" where originally established in

contemporary communities based on roles and standards set during colonization. When the media

attention on the party pill industry again began to be publically become a topic of conversation, the

comparisons of harms associated with alcohol or tobacco largely appeared to not have been

considered or was at least overlooked as a comparative factor to a large degree.

Hence STANZ was created - the Social Tonics Association of New Zealand - a group of party pill

manufacturers, with its own code of practice. "We needed to convince the rest of the industry that

the only way they'd be able to stay in business was by being socially responsible and integrating with

the rest of society. Maybe you'll lose a bit of revenue this way, but we'll be around for 10 years

instead of being switched off in six months." STANZ has lobbied with some success over new

legislation governing party pills, especially regarding the passing of the Misuse of Drugs Amendment

Act in 2005 (Little, 2005).

The Liquor Board, which represents the producers of the more socially acceptable, and

importantly, legal of the recreational drug markets, alcohol, also operates in this market context, as

do the Class D substitutes which were introduced, largely thanks to Matt. Commercially, the Liquor

board is in a pretty strong position; besides Nicotine and Caffeine, which in themselves are not direct

competitors with Alcohol (in fact some may even go so far as to deem them complementary goods),

they largely hold a monopoly market position in the recreational drug markets internationally.

As the industry continued to grow and expand, the numbers of players in the industry also

grew exponentially. Fighting for regulation and compliance, or at least minimum standards of best

practice, Matt established STANZ (Social Tonics Association of NZ). And while the successes of these

initiatives over the broader industry was mixed (as rogue producers who refused to join up to STANZ

continued to sell pills up to 16x stronger than the voluntary limit set by STANZ causing considerable

health concern to consumers), the end of this "BZP" era was one Matt had in sight. One may even


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say this was something he had experienced before. Yet this time it was not only the legal and media

pressures were not the only ones experienced by Matt throughout this time.

Government & Country Level | The New Zealand Context

Matt Bowden’s entrepreneurial success has largely remained possible due to the context

within which it occurred as much as it was about the qualities and characteristics of Matt’s

charismatic and relatable nature. Being in New Zealand, which is characteristically unique for the

size and nature of our country, culture and contexts, that Matt was able to access the policy makers

and parliamentary members with relative ease. As Kiwi’s, we pride ourselves on being

entrepreneurial and innovative, evidence of which can be found in our fascination with the concept

of the “No.8 wire”. In fact, cited in a recent New Zealand Trade & Enterprise report, (NZTE, 2009),

Frederick & Chittock claim that Auckland is the most entrepreneurial city in the OECD, presenting

just one example of this ultimately ingrained Kiwi construct and belief as self proclaimed innovators

(New Zealand Trade & Enterprise, 2009).

There are constant reminders of NZ markets small size being the element which enables us to

be so innovative and often how we are largely often able to showcase some of our best

entrepreneurial achievements. In the processes of completing this case alone, not only has Matt's

eloquent anecdote of this concept captured but also another from a different research groups

presentation within this field. "Stargate is firmly based in New Zealand. In fact, its location is one of

the reasons for its success, because this country is more open to the kind of alternatives in which the

company deals. It is also small enough that Bowden had access to officials who could sign off the

legality of his work, and decisions could be made relatively quickly” (Little, 2005).

"We need to establish best practice here, so New Zealand can be used as a case study for

other countries and we can call a truce to the drug war." - Matt Bowden (as quoted by Little, 2005)


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WORKS CITED

Bowden, Matt (2010, Sep 28) Interview in his home, transcribed notes can be made accessible

at request.

Betta, M., Jones, R., & Latham, J. (2010). Entrepreneurship and the innovative self: a

Schumpeterian reflection. International Journal of Entrepreneurial Behaviour & Research , 16 (3),

229-244.

Choi, Y. B. (2003). Schumpeter on Entrepreneurship. Austrian Economics and Entrepreneurial

Studies , 6, 275-278.

Herbert, R., & Link, A. (1989). In Search of the Meaning of Entrepreneurship. Small Business

Economics , 39-49.

Little, P (2005) Gods Work, FQ Men Magazine

New Zealand Trade & Enterprise. (2009). Playing to our strengths: creating value for Kiwi

firms. Auckland.

Schumpeter, J. A. (1934). The Theory of Economic Development: an inquiry into profits, capital,

credit, interest and the business cycle. New Brunswick, N.J: Transaction Books .

Sheridan, J., Butler, R., Wilkins, C., Russell, B. (2007) Legal piperazine-containing party pills – a

new trend in substance misuse. Drug and Alcohol Review 26 335-343. A199

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