Q and A with Phillip Di Bella

The Queensland coffee king talks to Tony Featherstone about his plans for international expansion and why he believes there will be more start-up entrepreneurs on big company boards in the next few years.

There is a view that directors should join formal or advisory boards of high-growth small ventures, to share their experience, networks and access to capital. But could the reverse have more impact: entrepreneurs joining the boards of big companies? Many would struggle with the transition. Entrepreneurs who are single-minded, non-conformist and intolerant of bureaucracy could be a grenade in boardrooms characterised by collegiality, compliance and conformity. Yet their dynamism would also be a huge advantage for some boards.

The Queensland coffee king, Phillip Di Bella MAICD, believes corporate Australia will see the rise of entrepreneurs on company boards this decade and next. The 39-year-old chairs the CBD Economic Development Board, is a non-executive director of Brisbane Marketing, and Tourism and Events Queensland, and a member of the Premier’s Advisory Board, among other board roles.

He is also founder and managing director of Di Bella Coffee (Twitter @DiBellaCoffees), the speciality coffee powerhouse that provides beans for 150 million cups of coffee each year in Australia. Starting with a $5,000 investment in 2002, Di Bella Coffee turns over $40 million annually, employs more than 250 people, and is expanding overseas.

The BRW Young Rich list estimated Di Bella’s personal fortune at $83 million in 2013 and he is regarded as one of Australia’s brightest young entrepreneurial stars. He was almost an “accidental” director when Queensland Premier Campbell Newman (then the city’s Lord Mayor) asked him to chair the Queen Street Mall Advisory Board (now the CBD Economic Development Board), to help retailers in the iconic Brisbane mall.

“I had to Google what the chairman’s duties were,” jokes Di Bella. “I never had exposure to boards other than an advisory board for my business. The Premier said he wanted me because of my entrepreneurial experience. He wanted directors who could see things differently and who had an ability to create and do things better.”

Di Bella has since joined several government advisory boards, and the CBD Economic Development Board’s role has been expanded under his chairmanship. He believes start-up entrepreneurs have much to offer government and big business boards, a view that could be considered self-serving. Great entrepreneurs are never short of self-belief or a view that they can do things better than everyone else. Fostering corporate entrepreneurship, while important, is only part of a board’s function.

Still, Di Bella makes a telling point. The diversity debate on boards has focused mostly on gender, and there is growing recognition that wider skills and cultural diversity is needed. But what of diversity in director mindset and personality: the ability to think differently about business and create, innovate and grow?

As boards worry about the potential for technology to disrupt their business models and markets, a reasonable question is: should they recruit the “disruptors”, and help them become accomplished company directors? And in turn, help management disrupt their competitors, find uncontested market spaces, create new ones, and stomp on insurgent companies. That does not means boards should rush out to nominate start-up entrepreneurs, or that experienced directors, especially those who are accomplished corporate entrepreneurs, are incapable of out-of-the-box thinking.

Rather, boards that are serious about genuine diversity should consider the skills that highly successful start-up entrepreneurs offer. The best ones have a knack of challenging orthodoxies, speaking their mind, and driving fast change. With guidance from the chairman, they could help boards question their decision-making processes and potential biases.

Governance work does not suit all entrepreneurs. Di Bella removed his four-man advisory board when he felt the company outgrew it and because too much red tape, and unnecessary meetings were creeping in. He was also stripped of a Telstra Queensland business award this year after criticism that he made foul-mouthed, homophobic comments via social media, during a rugby league State of Origin match. Di Bella quickly accepted the blame, apologised, and kept all his government advisory roles. It was a lesson in the perils of social media and the risks of having outspoken board directors.

Di Bella is passionate about all things Queensland, Italy, coffee and hospitality. Although he has ruled out a career in politics, his growing influence in the Sunshine State and his relationship with Premier Newman, suggests he has more than a passing interest in good government. He has also been a vocal critic of Australia’s industrial relations (IR) reform, particularly on penalty wage rates, and believes payroll tax is the greatest impediment to companies hiring people. In this interview, he calls for greater interaction between industry and government, to get the country moving.

Di Bella has come a long way from the 26-year-old who used his savings to start a small business and made coffee at farmers markets, because cafes would not buy coffee from an unknown start-up. From an Italian migrant family, he started drinking coffee at age 11, started selling it at 14, and in 2010 was the youngest recipient of an Italian knighthood, for services to the Italian business community in Australia.

He is a vice president of the Italian Chamber of Commerce in Queensland. However, he is not resting on that success. The business has opened cafés in India and plans rapid expansion there. Restaurant and training projects in Singapore and the Philippines respectively will also expand the offshore presence. “We have to take Australia’s great coffee expertise overseas to emerging markets,” he says. “It is an amazing opportunity.”

Locally, Di Bella wants to lift its share of the specialised coffee market from 150 million cups each year to 250 million cups by 2017, and expand its position as the largest provider of specialist coffee to cafes and restaurants. Di Bella reckons he has made more than a million cups of coffee and still has three short blacks a day, sometimes up to 10 on coffee-tasting days in the business.

Here is an edited extract of his interview with Company Director:

Company Director: You have been vocal on the need for industrial reforms, specifically around weekend penalty rates. How much of an impediment to growth is the current IR system?

Phillip Di Bella: Australia’s current industrial relations system is a massive impediment to growth. During a recent public holiday in Queensland, 90 per cent of my café clients were closed. They couldn’t afford to open because penalty rates are way too high. The result: employees missed out on work, government missed out on GST and corporate taxes, and customers were inconvenienced. I’m not advocating lower wages for hospitality workers; simply fairer wages, and a recognition that wages being so high on a public holiday is no longer feasible.

Payroll tax also needs urgent reform. It should have been abolished years ago when GST was introduced. I could hire another 10 workers tomorrow if it was abolished, and I’m just a mid-size business. Surely, the solution to unemployment is making it easier and cheaper for business to hire more people, and have some incentive to grow.

CD: What other government reforms could help foster a more vibrant entrepreneurship ecosystem in Australia, and make life easier for small business?

PDB: There’s no silver bullet. But the closest is encouraging deeper engagement between industry and business. The federal government should take a leaf out of the Queensland government’s book and form advisory boards with business people who are successful, experienced and passionate. Governments need to realise that the solution to so many problems is enabling business to make more money, so they pay more taxes and employ more people. It’s pretty simple, really.

CD: You have joined several advisory boards since the Newman government took power. What made you join those boards and has it been hard to translate the world of entrepreneurship to boards of government enterprises?

PDB: I saw those boards as a platform to learn more about business and governance, and help Queensland. I knew nothing about leading a board and had to Google what being a chairman involved, so it’s been a steep learning curve. But the boards have gone very well so far. I also joined the Australian Institute of Company Directors to develop my governance expertise and network.

CD: As chairman, what’s a typical board meeting like?

PDB: It’s fast-paced. I’m not one for lots of reading and useless discussion. It all starts with our vision – the why in “why we are here”. Our communication is precise and concise. We ask the CEO to supply a weekly “top 10” list of issues, in bullet-point form for the board and the relevant government body. It’s a simple way for the board to be engaged in the business every week, not just in board meetings. I favour very inclusive meetings where everybody has a say, and I insist that directors set the agenda for the following meeting, so they have real buy-in. Compliance on our boards is very important, and it happens, but the focus at my board meetings is mostly on strategy, vision and looking ahead. I ask directors what they want to be remembered for in their work on the board in the next two years, we turn that into a document, and we make sure that everyone is driving towards their personal and board goals.

CD: As the driving force of a venture, how hard is it for the founding entrepreneur to take direction or insights from directors who are not nearly as involved in the business?

PDB: It can be hard. Entrepreneurs often think about ideas and issues that most people are not even contemplating. Their business plan is constantly evolving and the organisation’s direction can at times change rapidly. Your typical board director can struggle with that style of management, which might seem chaotic at times, even though it is part of being an entrepreneur and running a high-growth business. The entrepreneur has to be very good at communication, and clearly explain evolving ideas to their board. Directors need to think about how they communicate with the founder.

CD: How could we connect experienced company directors with fast-growth ventures, so that start-ups can access support, networks and capital when they most need it, but can least afford it?

PDB: Pay directors with equity rather than fees, and waive any capital gains tax on director shares. Yes, there is greater risk joining the board of a start-up, so directors need to be compensated with greater potential reward. If they truly believe in the business, they will forgo director fees, to gain bigger reward through equity. From the founder’s perspective, the start-up should be prepared to give a small amount of equity away upfront, if it means getting great knowledge, experience and access to networks, by forming a board.

CD: How can Queensland attract more listed companies and foster a more vibrant ecosystem of entrepreneurship?

PDB: We have to promote Queensland’s advantages: the ease of doing business here; lower costs in areas such as payroll tax; and the state’s natural advantages with the climate and lifestyle. We need to get the message out that Queensland is leading the way in dropping payroll tax and workers compensation costs, and has a very pro-business government that is extremely capable, if not always likeable to the mainstream audience when tough decisions have to be made.

With Queensland entrepreneurs, we need to group people and organisations around opportunities, for example, agricultural entrepreneurs in North Queensland; energy and gas entrepreneurs out of Gladstone in central Queensland; and financial and technology entrepreneurs from Brisbane. A regional entrepreneurship strategy makes a lot of sense.

CD: What advice could you give directors, especially those from a corporate background, who are considering joining the board of a high-growth entrepreneurial venture?

PDB: I have three suggestions. First, always remember your job is to support the founder, not dictate to them. Second, speak from expertise, not opinion. It can be frustrating for entrepreneurs to listen to all these opinions on boards, when what they really want is a considered view that is based on experience and expertise. Third, recognise the difference with entrepreneurial starts-ups. The founder is going to push the boundaries, because they have to be first to market or different. You can’t govern a start-up like an established company.

CD: How would you characterise current trading conditions in the hospitality sector? Is it as weak as the data suggests?

PDB: Yes and no. An unemployment rate of 6.4 per cent, while a bit high, is hardly devastating. The big problem is consumer and business confidence. People are not spending like they used to because they are worried about the future. Less money in circulation has significant flow-on effects in hospitality. It’s a struggle for many café owners.

CD: You deal with hundreds of café owners every year. What social trends are you seeing that directors should be aware of?

PDB: A much greater focus on value has emerged in the past few years. People are drinking more cups of coffee at cafes but ordering less food. Casual dining is growing strongly and fine dining is under immense pressure. Cheaper food, such as pizza that is becoming more gourmet, is proving very popular. There is this convergence towards the middle ground as consumers want to eat out more and use more services, but not pay high prices.

CD: Your company has lots of Gen Y and Gen Z employees. What advice could you give directors who govern organisations with a high proportion of teenage or twenty-something workers?

PDB: Embrace it. Motivated young workers are a great asset for any business. I have a saying that it’s easier to slow someone down than it is to fire them up. I much prefer having to tame an ambitious Gen Y worker who is all go, go, go and won’t take no for an answer, than having to metaphorically kick a lazy worker up the butt to keep them going. The organisation needs strong systems in place to ensure young workers don’t go too far, but not so strong that you limit their drive and creativity.

CD: As an Adjunct Professor of Entrepreneurship at Griffith University, you have exposure to entrepreneurship education. Do we need to rethink how we teach entrepreneurship at school and university?

PDB: Absolutely. Entrepreneurship should be taught across all levels of school and throughout university. Kids are born entrepreneurial. Give them a cardbox box and they come back with a cubby house. Give them a toilet roll and they invent a telescope. They instinctively know how to create resources, yet somewhere along the way, too many lose this trait. Our education system spends too much time telling kids what they can’t do, rather than all the things they can do.

CD: You were criticised this year over comments on your Facebook page during the rugby league State of Origin that some critics construed as homophobic. What did you learn from that experience?

PDB: I learned a hell of a lot. About 98 per cent of people supported me, and the 2 per cent who did not said, “Phil, you are a business leader in Queensland and lots of young business owners follow what you do and say. You should have known better.” They were right. I accepted that I did the wrong thing, apologised, and set out to make up for it in my actions. I do take offence at the suggestion I am homophobic; it could not be further from the truth.

Another lesson is that directors have to be very aware of the potential fallout from an ill-considered social media comment. I am trying to be more circumspect in my public comments and show more discretion as a result.

CD: What’s next for Di Bella Coffee?

PDB: International expansion is key. We have seven Di Bella cafes operating in India and believe there is a huge potential, given most corporate offices there do not have coffee shops in the foyer. A Singaporean group is looking to start a chain of cafés/restaurants using the Di Bella name, and we are working with the largest hospitality training school in the Philippines. Given we are the largest coffee-drinking nation in the world by capita, Australia has an outstanding opportunity to take its skill in coffee to emerging markets.

Locally, we have just launched Di Bella espresso capsules for home coffee machines, and we are about to launch an espresso martini range in cans for sale in hotels and stadiums. We are also doing a lot more work with cafés, such as Brunetti in Melbourne and we are also about to launch an online educational training course called From Crop to Cup.

CD: Will we see you on more boards in coming years, possibly listed companies?

PDB: I would love to be on more boards, although I don’t go chasing board work. I have really enjoyed chairing and being on boards so far. It would be great to be on the board of a big-four bank, so you can give them the SME perspective, although I can’t see too many banks putting a 39-year-old entrepreneur on their board.